Where does the Chinese system fault
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Total Marks: 80
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CASE STUDY : 1 (20 Marks)
Zhuhai of Shanghai
“I’m not sure whether they
understand that a firm cannot he a bundle of discreet businesses. Most of the senior
Chinese executives I talk to arc convinced that they can make anything . . .
absolutely anything that will make money. After so many years of command
economy, managers are oblivious to the concept ofmarket ……they aren’t keen to
get into bilateral trading even when it makes sense. They would rather pursue different
ventures totally unrelated to each other,” said a financial analyst of an
American brokerage firm located in Shanghai. Mr. Dong Hong is the president of
Zhuhai To Zi Company (Zuhai) which was founded in 1980 as a construction
company. Before joining the company in 1989, Hong was a high ranking army
officer in thePeople’s Republic of China. As president of Zhuhai, he attended
an executive management programme at Harvard Business School. Although Hong
enjoyed the programme, he came back with some reservations about the relevance
of what he learned. One of his oft-repeated summation of the programme was: “I
have problem with the terms like core competency and synergy. At this point in
time, there are ample opportunities in China to make good return in any
business. You don’t mean to say that we simply stick to the knitting and pass
these opportunities to others? China is a virgin land, you need to understand
that.”
HISTORY OF SGL
Zhuhai has received a
favorable media splash in China upon its taking a controlling interest of
Shanghai Gue Za Liao Company (SGL), a poly-crystal manufacturer. SGL was
founded in 1969. At that time, it was the largest manufacturer of poly-crystal
in China employing 900 people. It received quality awards for six consecutive
years. In 1992, SGL was authorized by the Shanghai Municipal Government to
become a joint stock company. In less than 15 days, it sold RMB ¥(yen) 1.1
million worth of stock at RMB ¥22.00 per stock (¥10 par value) to the public and
to the employees of the firm. The registered capital was RMB ¥33.799 after the
fund raising. The Government owned RMB ¥18.799 million worth of stock. The
stock was floated through the Shanghai Securities Exchange Centre. In 1993, the
market price per stock was RMB ¥l8.79, with
a price of RMB ¥7.85 at
its lowest point. By being a listed company, SGL cased its cash flow problems
but the rate of return was getting depressingly low and its market share
went down from 51 per cent in 1970 to 36 per cent in 1993.
MANUFACTURING TECHNOLOGY OF
POLY-CRYSTAL
Poly-crystal is a
crystalline specimen which contains many small individual crystals. There are
different methods of making this product. The most common and widely used
method is called Chemical Vapour Disposition or CVP. In this process, the
material to be crystallised is vaporised in a chamber and then condensed on a
substrate to form crystals. Silicon crystals are mostly used in semiconductor
(i.e., computer 3 chips) and solar power
applications for their unique properties and inexpensive raw materials (mainly
sand). Though it is not a labour-intensive process, it requires rather
sophisticated technical skills. The electronic industry in the developed
countries produces its own crystals. IBM, RCA, Motorola, andTexas Instruments
are the major producers of crystals in the U.S. Application of semiconductors
and use of photovoltaic cells will continue to rise, and with it the demand for
poly-crystal is expected to increase.
OPERATIONAL EFFICIENCY OF
SGL
Since China started
allowing imports, SGL’s market share had shrunk for a combination of reasons.
First was the slow rate of growth of Chinese electronic industry where
poly-crystal is mostly used. Second was that imports had been consistently of
high quality which SGL could not match due to lack of skilled labour and
obsolete technology. Third was the ever-increasing costs of power and raw
materials contributing much to increasing cost per unit of production. Pricewise,
SGL could not compete with the major importers from the U.S., Russia, Ukraine,
and Germany inspite of the fact that the labour rate in China is about
one-third of the U.S. and Germany. In 1994, SQL sold 34 tons of polycrystal
where the total domestic demand was estimated to be about 105 tons.
In an attempt to diversify
the company, the board of directors decided to get into the taxi business as
the city experienced a surge in the tourist market. As of 1994, Shanghai had
about 35,000 taxis. A taxi owner typically receives V300 per day per taxi
irrespective of the driver’s earnings. The driver makes on an average about
V150 to 200 each day but he is responsible for buying gas and paying for
repairs of any mechanical defects. In addition, he has to pay the police for
any traffic violation. The time SGL entered this market, the Chinese banks
eased their lending process allowing many of the
existing drivers to buy
their own taxis with easy repayment schedules. This had the salutary effect,
for SQL, of not finding enough “qualified” drivers without lowering the owner’s
usual income of 300 per day. Managing this line of business was becoming a
headache. SGL asked several of its managers to move into the taxi-sector. Some
of them flatly refused and a few accepted the assignment grudgingly. SQL,
though doing poorly both in crystal and taxi business, did not lay-off
employees or reduce their benefits. SGL’s top management thought that the
company had gone as far as possible with its restructuring efforts and decided
to be taken over either by a foreign or a domestic firm. It also tried in vain
to form alliances. In April 1994, the Government decided to sell its RMB Vl2
million worth of stock of SGL to Zhuhai To Zi company, making it the largest
stock holder holding 35.5 per cent of the entire stock. Immediately after
thetakeover, Zhuhai asked SGL to produce quartz glass for a particular Japanese
company. The outsourcing attempt by this Japanese firm to SQL lasted about a
year as it was not satisfied with the variance in quality and delivery
schedule. With the available technology of SGL, Zhuhai decided to get into
manufacturing electric energy meters for state-owned facilities. These
state-owned operations had been the major customer base for SGL’ s
poly-crystal. Working with the similar customer base, SGL started to make money
with its energy meters. The two business segments, real estate and the energy
meters, contributed much of Zhuhai’snet return of 15 per cent, providing an
overall liquidity ratio of 2.7 per cent and a quick ratio of 1.94. The financial
position of Zhuhai is provided in the Table 1.below
RESTRUCTURING OF ZHUHAI
The president of Zhuhai
restructured the company making each division a separate strategic business
unit (SBU). The revised organisation structure is provided below. Note that the positions immediately below the
unit vice presidents and under them there were a cadre of personnel doing various jobs as directed by
their bosses. Mr. Hong made it clear to all SBU vice presidents (VPs) that
decisions regarding product development, pricing, procurement and human
resource management would be taken by the president himself in consultation
with the board of directors. Mr. Hong stated in a recent meeting that the VPs
were responsible for making at least 20 per cent rate of return for their units.
“Lower than 20 per cent will mean either demotion or transfer for that
particular VP”, he said. “We have started making short cuts, saving money in
every possible way.... but I’m not sure whether any strategic business unit can
function without strategy. Just a promise of fixed rate of return at the end of
the year? Is that all in the name of strategy?”, asked the vice president of an
SBU.
Question :
1) Discuss the typicalities of Chinese Industrial system vis-Ã -vis
the Western/global Industrial system.
2) Where does the Chinese system fault?
3) Is over production and mis-match in marketing leads to poor
prices of Chinese products in the International Market?
4) If you are offered, views as a top consultant, what would you
like to suggest the Chinese Government and industry? Give your reasons.
Case-2 (20 Marks)
Toyota Comes to Georgetown
Mrs. Friers, in her early
sixties, of Georgetown’s new Wal-Mart store cannot be anything but polite when
she discusses Toyota. In a low voice to my companion, the doctor at the local
Scott County General Hospital, Friers said, “You know Doe, Toyota did not offer
that job to my daughter.” “I am sorry to hear that,” theDoctor commented
casually. “Are you all glad that Toyota came to town?” I asked Mrs. Friers,
somewhat to fill the void. “Yes and no ... we were all excited when they first
announced it . . . it kind of sank in now, I guess.” Toyota’s labour practices
was the hot topic at the local drug store too. A middle aged man, who had
worked in an iron foundry for 31 years, commented, “In Toyota you have to earn
every penny . . . there is never a slag . . . never the time to say hello.” His
youngest son, Dwayne, is currently employed in the Toyota plant. He is
extremely pleased that the company has abandoned the practice of workout in the
morning. A skeptical Baptist preacher asked, “what the heck have we got because
of Toyota? Most of their people come from Indiana and Ohio. I hear some of them
even commute from Arkansas.”
TOYOTA COMES TO GEORGETOWN
Georgetown, about 25 miles
south of Lexington, Kentucky is the Scott County’s heartland. The county’s population
is 25,000 out of which 22,000 are white. Over 53 per cent of the household
income is between $15,000 to $49,999 per year. It has 93.7 males for every 100
females. About 43 per cent of the population are between the ages of 18 to 44
years. It was a puzzle to many residents as to why Toyota selected this sleepy
town for their new venture. Some of them argued that the then Governor of the
State, Martha Lay Collins, charmed the Japanese so much that they lost their
way and their heads too. Some others contended that the State made huge tax
concessions to the company and wrote blank checks. The local paper cashed in by
printing all possible undocumented
stories about Toyota. However
the present Mayor of Georgetown denied charges of any underhanded deal. He
rationalized the process of selection thus: Toyota selected this location
mainly to take advantage of the transportation network of 1-75 (North and
South) and 1-64 (East and West). He added, “the topography of the land here is very
similar to the land around the Toyota City in Japan. I assume the company was
also attracted because of non-union focus in this State.” The original plant
location was about three miles outside the Georgetown city limit. The office of
the Mayor made it clear to the Toyota people that since the city was the
closest municipality it would end up providing most of the infrastructural
services to the plant but without any return from Toyota. Why should the taxpayers
of Georgetown accept this liability without any tax revenue coming from the
company? The company’s vice-president had asked the Mayor to attend a series of
breakfast meeting with him andother officials to sort out this and other
related problems. The Mayor described the outcome of these meetings thus: “We
were aware that this was a huge economic development opportunity but was also onscious
of the fact that the town people should not be shortchanged in any shape or
manner.” In April 1987, Toyota confirmed the setting up of the plant in
Georgetown.
TOYOTA’S OPERATIONS
In May 1988, the first
Kentucky Camry was introduced at a plant wide celebration. And in the same
year, Camry received the J.D. Power Gold Plant Quality Award. In November 1988,
Toyota announced plans to double the plant size and production at the
Georgetown plant. In September 1991, Toyota unveiled a major model redesign
for the year 1992. In January 1992, Toyota announced plans to expand Power train
Plant to add V-6 productions. By March, the production of Camry Wagon began. In
September 1994, the Georgetown plant began production of the Avalon, a new
large sedan aimed at the North American market. In 1988, Toyota was able to
produce about 200,000 Camry Sedans of which 20 per cent were exported. In 1995,
it doubled the production to 400,000 with the hope of exporting 20 per cent
to Taiwan, Europe and Japan. With this tremendous pace of change, the company
demanded from its workforce nothing short of total dedication. The pace became
such that the workers started using “Kaizen”, “Kieretsu”, “Kanban” and few other
similar Japanese phrases even in dealing with their own family members. In
1995, the employees were told that since the sales had declined by 2.5 per
cent, the process had to he streamlined, using fewer model variations and
increasing white-collar productivity. An assembly line worker said, “Gosh, how
could any more speed be achieved without killing each other . . . but this is
Toyota. Find a way to do it . . . or a way out.”
THE GAINS AND THE BARGAINS
Toyota’s direct employment
in the U.S., as of December 1993 was 16,674. including the 1438 Toyota/Lexus dealers,
the company employs over 90,000 people in the U.S. In Georgetown alone,
it employs 6000 people representing all 120 counties of the State of Kentucky.
What Kentucky gained from Toyota is a question that ninny people ask. For
instance, the company was provided with an incentive package of $325 million.
Out of
this amount, $68 million
was paid for job training, and $40 million went to building roads and sewers. Toyota
operates under the Free Trade Zone which provides tariff exemption of $14
million a year. The company was allowed to import parts and machinery without
paying any additional tariffs. The State paid $167.6 million interest costs for
its warehousing distribution. The balance sheet predicts that the Camry plant
could generate $673.4 million in state tax revenue including individual and
sales taxes. Further, due to Toyota’s plant expansion there will be a whole
host of satellite industries around the area with vast potential for job
opportunities. Estimates suggest that the Camry plant and its suppliers based
in the State have already created 22,000 jobs in Kentucky.
OTHER STATES FOLLOW LEAD
The State of Tennessee, in
order to bring in Nissan, convinced the Federal Government to approve $5 million-a-year
tax break on plant expansion (production expanded from 250,000 to 450,000), and
allowed it to operate under the Free Trade Zone as Kentucky did for Toyota. The
State of South Carolina in its effort to get BMW also had to provide $5 million
in state income tax credits and an additional $3 million for employee training.
The State wl1 set the BMW’s property taxes at the same rate for 5 years
at a time and extend the Zone on Greenville-Spartan airport. This venture
estimates 10,000 additional jobs in the region including about 2,000 at the BMW
location itself. According to his estimate, the State will benefit by
$28million a year in taxes. The latest in this league of getting large
employers is the State of Alabama. Mercedes Benz has accepted we location to
manufacture under the following conditions: the State will provide $92 million
for site development, $77 million for infrastructure, $60 million for job
training, and $8.6 million for sales and tax concessions on equipment. The
State also made a good faith commitment to buy from the company, 2,500 8 vehicles at an estimated price of $75 million. Mercedes will
employ 1,500 people and it expects a mushrooming of industries around the plant
site.
TOYOTA TRIES TO BE A GOOD
CITIZEN
From the day of inception.
Toyota officials insisted that the company should be a part of the community.
For instance, it cited the following contributions: $1 million for the citizens
of Scott County to build a community centre, $15 million over a 20 year period
to the County school system; $141,000 to develop a child care centre; $500,000
for the development of a Thoroughbred Park; $25,000 and $30,000 to the Lexington’s
Children’s Museum and Philharmonic respectively. The city of Georgetown
receives one per cent of the payroll tax and an additional percentage of the
net profit of sales. The city’s general fund budget went up to $6.7 million in
1992 from a mere $2.2 million in earlier years. This allowed the city to extend
itspolice force and add a fire station. Fire insurance rating for the city went
sown from class 6 to class 4, resulting in savings of about $500,000 a year in
insurance costs for the home owners. Although Toyota has never agreed to give
preferential treatment in employing Kentuckians or people from Georgetown, the
mix at the shop floor level suggests that over 80 per cent of them are not
residents of the county. At the managerial level, the Japanese are in charge of
production control,’ purchasing, finance, engineering, and quality control
functions. The president is also a Japanese national. The U.S. personnel occupy
the positions of senior vice-president, human resources, public affairs, and
vehicle assembly production. A majority of managerial and supervisory staff
live in Lexington and Louisville (Kentucky), and Cincinnati (Ohio).
GEORGETOWN ON THE MAP
Has Toyota not been the
single mo stimportant factor to bring prominence to this area? The existence of
two interstate highways 1-64 and 1-75 was what had attracted Toyota to
Georgetown. Yet these two highways contributed negatively by moving people
away, towards bigger cities like Lexington, Kentucky and Cincinnati, Ohio. Lexington
and Cincinnati, for example, have better schools, shopping centres, cultural
activities, and have legal liquor sales. The Director of Georgetown-Scott
County Planning Commission notes, “the originally anticipated large increase in
population has not occurred . . . and is not anticipated to rise substantially beyond
the normal growth for a community of our size.” The Director agreed that
traffic had dramatically increased since Toyota’s arrival and this was much to
the annoyance of the local people. But on the plus side, he claims, the local
schools have benefited from the company’s contributions. To Mrs. Friers and
many others, the presence of Toyota has added to their frustration. They are
angry and
dismayed since the plant
has changed their way of life. They feel that the way life was in Georgetown
will never to be back, and they do not know how to fill the void they now
experience. One of them aptly summarized the feeling of others thus: “we now
see lots of new faces, and we don’t know where they comefrom, where they arc
going. But they seem to leave us at night to guard this divided city—that’s the
new city where Toyota is . . Japanese money, fancy cars, fast foods. The other
city is where we folks are—still chewing our deep-fried catfish and spoon bread
while recalling the long list of small mom and pop shops which used to be on
the main street that are now being sucked up by the winds of the Wal-Marts and
the Krogers of the new world. Do we have to destroy the yesteryears to get to
the year 2000? There used to be a word called co-existen de. I guess, we don’t
care what it means any more!”
Questions
1. What is the difference between American production policy and
Japanese production policy?
2. Where the Japanese Excel?
3. In quality control of Toyota what do you observe?
4. Can Japanese, be really leader in auto production and
marketing, all over the world? Justify your moves.
Case -3 (20 Marks)
How to Win at Westinghouse
Westinghouse founded the
Westinghouse Electric Company in 1886, over 100 years ago. From the beginning,
the hallmark of the company was one of entrepreneurship and creativity. By
inventing a new fortr3nsmitting electric current over long distances, the firm
penetrated the fledgling electric industry. Its aptitude for technological
innovation led the firm into the development and creation of diverse products, from
household appliances to watches to nuclear power equipment. The firm also
demonstrated creative
diversity, branching into
such endeavours as radio station operations, soft drink bottling, and low
income housing Today, the Westinghouse Corporation is organized into six
operational groups broadcasting, commercial, electronics systems, energy and
utility systems, financial services, and industries. As Westinghouse grew and
began its expansion into foreign markets, it became apparent that the firm’s organisational
structures and communication systems would have to be modernized to provide the
flexibility demanded by overseas operations. Rigid procedures and red tape had
to be eliminated, and ways had to be developed, by which key employees around
the world could communicate with each other rapidly, so that their giant
company could adequately react to changing conditions around the world. To meet
this communication support challenge, Westinghouse established a
change-responsive high-techcommunication network to support its far-flung
operations. A new commuter system allows employees at all levels of the
corporation to communicate through decentralized support networks. Westinghouse
employees from different divisions and different departments can link-up in
order to share information around the world. The new support system, called the
Westinghouse Information Network (WIN), links more than 600 Westinghouse
facilities, providing both voice and data transmissions as well as an
electronic mail system. Westinghouse employees can link WIN to their homes or
to their lap-tops when travelling. WIN offers videoconferencing, which reduces or
eliminates the need for costly and time-consuming travel to meetings. 10WIN also contains an advanced negotiation system, called EDGE,
which supports sales personnel during complex sales negotiations. Every working
day, over 90000 Westinghouse employees utilize the WIN system, which provides
the flexible on-line support that Westinghouse needs to expand its global
enterprises. (16).
QUESTIONS
1. Describe the ways in which international business has an impact
on your life.
2. Pick an Indian corporation with which you are familiar and
analyse the reasons why it might be motivated to expand its internationalism.
3. What sorts of adjustments might McDonald’s have to make in its
operations in India?
4. What do you believe India must do to improve its international
competitiveness?
5. How do you perceive your managerial career will have an
impact by the phenomenon of international business?
Case-4 (20 Marks)
Doing Business with the
East—Motorola Style
When Motorola decided to do
business with the East, it was done in a big way. Motorola has penetrated virtually
every niche in Asia’s booming telecommunication and semiconductor markets. It’s
Asian strategy has already accounted for 13 new factories in nine countries.
Its dynamic growth in Asia is exemplified by Tam Chung Ding, President of
Motorola’s Asia-Pacific semiconductor division. His office is located in Motorola’s
now $400 million Silicon Harbour complex with a grand view of the Hong Kong
harbour. Motorola leans heavily on Turns instincts and his aggressive
leadership style. Tam’s division is one of the most profitable and
fastest-growing of Motorola’s far-flung industrial empire. In 1990, Motorola’s
chip salesin non-Japan Asia rose by 20 per cent to $528 million, making it the
world’s third largest chip producer. Motorola is also Asia’s top supplier of
top-of-the-line walkie-talkies and digital cordless telephones. The East is
critical for Motorola, as Asian sales—outside Japan—total more than $1 billion
per year— almost 10 per cent of Motorola’s total sales. Motorola has long
recognised the potential of Asia. It began dabbling in Asian business in the
early 1960s, when it established sales agencies in Tokyo and Hong Kong.A decade
ago, Motorola split up its Asian semiconductor headquarters in Tokyo, locating
the office for its non-Japan Asian business to Hong Kong under the charge of
Mr. Tam. For years, Motorola had complained about Japanese trade barriers to no
avail. Then in 1987, it formed an alliance with Toshiba. The two formed a
successful chip-manufacturing joint venture, with Toshiba providing essential
marketing services. In 1990, Toshiba executive Isamu Kuru joined Motorola after
serving Toshiba for 28 years. Mr. Kuru provides the necessary insight and
understanding necessary to guide the Motorola’s Japanese operations. Other
notable Motorola successes have been recorded in India, Australia, Singapore,
China, and South Korea. However, the latter two ventures have been serious
challenges. In June of 1992, Motorola broke ground for a new $120 million
semiconductor plant in Tianjin, a Chinese port city near Beijing. It will be
the first U.S. semiconductor plant in China. In addition to making
semiconductors, the new plant will produce telephone pagers, mobile telephones,
and electronic equipment for automobiles. Many observers believe that such an
investment, coming so soon after the Tiananmen Square disaster, is far too
risky. Motorola is willing to take that risk, believing that China holds the
key to future competitiveness in Asia. However, to test those Chinese waters,
while the new plant was just starting construction, Motorola opened a
make-shift plant—also in Tianjin—to build the first of its paging devices.
Originally, Motorola assumed that the local demand for pagers would be so small
that it would have to export a large share of production. However, the plant
now produces 10,000 units each week, and the entire output is sold in China,
with each pager selling for $200. Experts indicate that the Chinese demand for
pagers has risen from 1 million in 1991 to 4 million in 1993. With the
make-shift plant performing well, the new plant scheduled to begin production
by the end of 1993, and a second new plant planned for the near future,
Motorola’s competitive position in China seems to be on a sound footing. Motorola
had more serious difficulties with its “Motorola Korea”, Limited venture,
especially with respect to labour problems. At first, the well-educated,
hard-working Korean workforce seemed to be ideal for Motorola’s needs. However,
in the late 1980s, Korean labour became disenchanted with long working hours, low
pay, and poor working conditions. Noting the growing riches of the Chaebols,
the working class wanted a greater piece of the economic pie. Thousands of
Korean workers took to the streets in massive demonstrations, demanding
economic reforms and the right to form labour unions. Motorola’s first taste of
trouble co” when 34 of its more than 3,800 Korean workers petitioned the Korean
government for the right to organise a union. Motorola has held a long-standing
policy against the unionisation of its workers and refused to negotiate the
matter with its employees. Some of them latter barricaded themselves in the
factory cafeteria and threatened to stay there until their union demands were met.
In response, Motorola closed the factory for a week in an effort to provide a
cooling-off period. However, when the factory reopened, violence immediately
broke out at the factory gates, and Motorola had to evacuate the facility. In
the following weeks, violence continued, a union organiser was arrested, and public
sentiment moved to the side of the ernployee. Before the matter was resolved,
Motorola lost anestimated $2 million in property damage and lost product. The
settlement also required Motorola to improve working conditions and to improve
wages for its employees Despite this setback, the Motorola operations in Korea
are still growing in keeping with the firm’s commitment to Asian development.
Despite the nagging problems of unionisation, a shortage of engineers and
technicians continuing trade barriers, and dealing with a divergence of local
customs, Motorola continues to press Asian development strategy—without harm to
its domestic reputation. A 1995 Fortune Corporate Reputation survey ranked
Motorola the fourth most admired corporation in the U.S. (up from sixth in
1994) and the most admired firm in the electronics and electrical equipment
industry (for the second year in a row).
QUESTIONS:
1. Describe some recent changes in your life or in your community
that reflects
the world’s shift from the West to the East.
2. What factors would you suggest are behind the shift from the
West to the East?
3. Did Japanese management style evolve from the Japanese culture,
or did Japanese culture evolve from Japanese management style?
4. Describe the business-government ties that result in Japanese
trade barriers.
5. Which of the Four Tigers of Asia do you believe has the
greatest potential for long-term economic growth? Why?
6. What must China do to realise the magnitude of economic success
earned by the Japanese?
7. Outside of Singapore, which of the other ASEAN nations holds
potential for economic success? Why?
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